- My LS
Coronavirus (COVID-19): Guidance for using the variation agreement
Requirements to stay at home and to maintain a distance from others have obviously had an impact on completions.
The priority is public health and trying to achieve what your client reasonably wants if completion cannot take place when scheduled.
Contracts exchanged but not completed
The draft specimen clause below is only intended to be reviewed for use in the very limited circumstances where contracts have already been exchanged, but completion has not yet taken place.
It is not suitable for use in other circumstances.
This clause is not being recommended for use. It’s intended as a starting point to enable you to identify some of the issues which could legitimately justify delaying completion of transactions where contracts have already been exchanged.
Position under Standard Conditions of Sale (5 edition 2018 Revision) (SCS)
Ordinarily, either buyers or sellers who do not complete on the contractual ‘completion date’ may be liable to pay compensation. (SCS 7.2)
If the date has passed and completion has not taken place the party who is ‘ready, able and willing’ to complete can serve a notice to complete on the other, requiring completion to take place by a certain date (SCS 6.8) and failure to comply when served on a buyer can result in loss of their deposit. (SCS 7.4)
To avoid penalties arising under the Standard Conditions of Sale (5 edition 2018 Revision)
To avoid the consequences arising under SCS the parties are encouraged to make alternate arrangements with each other on the basis that no-one is at fault but an external event beyond the control of the buyer and seller is preventing completion taking place on the date originally agreed.
They should be encouraged to approach this process in a spirit of good faith.
Buyers and sellers should be informed about all their options and the consequences.
You should advise buyers and sellers to consider rescinding the agreement and explain the consequences of doing this.
Ideally both parties would be put back largely in the position that they were in before contracts were exchanged. This means that the deposit monies would be returned in full and neither party would have any claim against the other.
If one or both parties still wish to proceed you’ll need to consider agreeing a variation to the contract so that the completion date is deferred to a time when it is possible and safe to proceed.
The purpose of the variation agreement is to propose a framework for this situation where completion cannot take place because of some aspect of the impact of coronavirus and the parties do not wish to rescind the agreement.
Explain the Risks
Consider whether your clients’ best interests are served by varying the contract and the impact of that on your client. Advise them of the risks of varying the contract and of not doing so. Some clients could find themselves worse off if the contract is varied and some could benefit.
It’s essential that the effect of any clause which is to be added to a contract, where exchange has already taken place, is fully explained to clients, confirmed to them in writing/email and written/email authority obtained from both/all clients for whom you are acting to act accordingly.
Clients should also be fully advised as to their position if the contract is not varied. The time that the deferral might last is unknown. There may be one or more extensions of the stay-at-home period and the requirements about physical distancing. The longer this period lasts the more likely it is that other issues will arise. For example:
- market values may change
- mortgage lenders may withdraw mortgage offers
- buyers may lose employment
The variation agreement
The provisions require good faith on the part of all parties.
You’ll need to ensure that the provisions of the variation agreement accord with the original contract in terms of definitions, etc.
One or more of the possible ‘delay provisions’ may not be relevant.
There may be other ‘delay provisions’ which are required.
The ‘no later date’ needs to be agreed between the parties to reflect the circumstances of the transactions involved and the needs of the parties.
The ‘long stop date’ should take into account the same considerations.
In clause 3 there could be a dispute about whether a Delay Event has occurred. You may want to consider inserting a proviso that might say something along the lines of ‘PROVIDED THAT if the parties, acting reasonably, do not agree that the Delay Event has ceased to apply, then the completion date shall be the date thirty (30) working days after the date on which the Regulations are withdrawn or otherwise cease to apply’, depending on the requirements of the individual transaction.
Some of the delay events are easier to evidence than others.
Do not simply adopt this clause as a standard clause to be used in every transaction. It is not suitable for use in this way. It is not a ‘one size fits all clause’ – it's essential for you to discuss with your clients what they want to achieve in varying their contract.
It’s likely to be easier to achieve this in single sale and purchase transactions.
Where there are chains it’s essential that a common clause is used throughout. If different clauses are used in parts of the chain your clients need to understand the effect of the different provisions especially where this will allow different dates for completion or different reasons for rescinding.
Consider how you will know what clauses the other parts of the chain are using and how you will know if these are varied before exchange of the variation agreement.
Email notices and authority
If you intend to use email to serve notices pursuant to any variation then consider reviewing your existing contract to assess whether this is permissible or not under the standard or special conditions and, if not, agree a variation limited to this.
If you intend to use email to obtain authority to sign on your client’s behalf – there are legal constraints here and you will need to consider this carefully.
Wales and cross border
You'll note that the draft variation agreement refers to ‘the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 and the Health Protection (Coronavirus Restrictions) (Wales) Regulations 2020, or any subsequent statutory amendment, modification or replacement thereof’.
It’s our understanding that these are intended to be very similar but if, either, there are chains that involve properties in Wales or transactions that involve properties with boundaries that cross England and Wales you may consider whether or not any of the defined or rescission events differ according to the regulations operating at the time the client is looking to enter into the variation agreement.
It’s obviously very important to take your clients instructions about how they want to proceed, to advise them as to the risks and benefits and to obtain confirmation from them in writing that they understand the risks and wish to proceed in writing.
While care has been taken to try and make sure the agreement is accurate it has been prepared in haste for obvious reasons and the organisations who have contributed to drafting will not accept any legal liability in relation to them.